The Mystery of Poor Customer Service Explained

In December 2008, the respected pundits at Forrester Research published a survey of customer satisfaction across 12 different industries. Of the various types of telecommunications service providers included in the study, the wireless faction came in first, followed by Internet service providers and then TV/cable companies - and all of them were ranked below "Airlines" for customer service quality. How does one make customers more dissatisfied than the airlines? Even worse, the only industry segment ranked below cable companies is the private health insurance cabal, where "death panels" really do exist.

From the perspective of consumer scales, the entire telecommunications arena scored from "Very Poor" all the way up to "Mediocre." Armed with this information, William Band, vice president and principal analyst for Forrester, interviewed 100 telecom operators worldwide to discover why they are so bad at servicing customers by asking these three questions:

1. What are your most important customer management goals?
2. What capabilities are included in your definition of customer management?
3. How strong are your current customer management capabilities?

The two most highly rated responses for Question #1 - almost evenly matched - are "keep customers" and "reduce costs." This seeming paradox is actually a Machiavellian strategy that will be explained shortly. The other questions elicited responses solely focused on software, specifically all software that is customer-facing. This includes call center customer care, online customer service, revenue management, service and support management, product and lifecycle management, marketing, sales and installation, and technical service and support. Band determined that the operators needed new, better software. Instead of the old concept of best-of-breed - the integration of packages from multiple vendors - they needed best-of-suite, an amalgam of code provided by a single developer. But there are dissenters to this idea.

Stanford's Jeffrey Pfeffer, in chapter two of his book "What Were They Thinking?," chastises companies who invest in customer relationship management software as the be-all, end-all for managing relationships with their revenue stream. Instead, he directs them toward purchasing human resource software that identifies the right people to hire, who will then in turn create a better customer experience. Pfeffer assumes that companies are deceived into believing that CRM software is a synonym for managing customer relationships, something that only another human can do effectively. He writes as if companies are stumbling around in the dark, investing huge sums into sophisticated software that is no replacement for the human touch. And with regard to telecom operators, he is wrong. They know precisely what they are doing, but they just haven't perfected it yet.

You see, I was a telecom CRM insider, someone who was in charge of the product management for a suite of software designed to integrate all customer-facing actions into a cohesive whole. I have presented to and spoken with wireline, wireless, cable, and Internet providers to learn their needs and strategies, something that Pfeffer can only guess. He is outside the veil looking in, and if he had asked me, he too would know the truth. In the interest of revisionist history, I'll recreate the "lost interview" with Professor Jeffrey Pfeffer.

Pfeffer: So, Mr. Guggenheim, if you say that operators know what they are doing, why are they investing so much money into CRM when it has not improved customer service?

Guggenheim: Hey, Jefferino, you're from Stanford and I'm from UIS, so as equals why don't we drop the honorifics and just get down to business? CRM covers a wide swath of software applications. That is, there is no "singular" CRM investment. The question you need to focus on is "what aspect of CRM is receiving large investments?" And the answer is artificial intelligence-driven customer analysis.

Pfeffer: My question still stands then, "why make the investment if it doesn't work?"

Guggenheim: Because the technology hasn't matured yet, and investing in Version 1.0 is a sure-fire means to accelerate research and development in achieving Version 2.0 - the version where the payoff occurs. As you saw earlier, operators are most concerned with both keeping customers and reducing costs, two seemingly paradoxical foci. But with enough intelligence in your software, you can do both.

Pfeffer: How's that possible? You have to spend money to keep customers happy.

Guggenheim: And there's the rub - operators are not concerned about keeping customers happy. In fact, they want to let a relationship degrade until just before a customer churns. At that point, they will offer a substantial promotion, which secures the customer for another subscription period. The key is that the promotion will cost far less than maintaining a happy customer over the same period of time.

Pfeffer: You mean the telecom operators want to let customer satisfaction erode?

Guggenheim: Absolutely. It's a basic actuarial analysis, and it's easy if the customer is on a subscription plan, but the trick is to recognize when the customer is about to churn from a month-to-month. Because most defections are not preceded by a complaint, it takes very elaborate artificial intelligence mechanisms to predict with certainty, say, one month before a customer opts for another provider, who, by the way, is just as bad as the one they left. At that moment, you offer two, three, or even four months of free service in exchange for a two year contract, and the cycle starts all over again. In this business, Jeffsky, maximum profitability is based on a saw-tooth wave of customer satisfaction.

Pfeffer: That's diabolical!

Guggenheim: Hey, Jeffo, you've been teaching business in the Ivy League for 30 years, did you think it was all touchy-feely? This is business-in-the-trenches, baby.

Pfeffer: Well, I guess I'll have to rewrite that chapter.

Guggenheim: And next time, do more research.